On August 22nd, Babylon's mainnet entered Phase 1, enabling Bitcoin holders to stake their BTC tokens on the Bitcoin network. For security reasons, the initial staking cap was set at 1,000 BTC, with a maximum of 0.05 BTC per stake.

Staking is a process where cryptocurrency holders provide their tokens to support the network's operations and earn rewards, similar to earning interest in a savings account. While staking is a fundamental feature of many blockchains, Bitcoin, has not supported this function.

Babylon protocol challenges this status quo, bringing Bitcoin's security and liquidity into the DeFi world. This opens Bitcoin up to a wide range of financial services, such as lending and trading, enhancing Bitcoin's utility, laying the foundation for the rise of BTCFi. However, to fully realize this potential, more real-world applications need to be built on top of it. This presents a brand new opportunity for builders to create innovative financial instruments such as liquid staking, and restaking for BTC.

With this in mind, Cobo has developed a BTC Staking API on Babylon. By abstracting away the complexities of developing on the Bitcoin network, Cobo's Babylon BTC Staking API enables developers to focus building on the application layer without needing to delve into the blockchain intricacies. Cobo employs MPC-TSS technology to provide best-in-class custody and wallet solutions, combined with enterprise-level risk management strategies and workflow, to ensure the security and efficiency of the staking process. As such, Cobo's BTC Staking API successfully assisted clients in staking over 742 BTC, accounting for over 74% of the total staked amount in Phase 1.

The Investment Dilemma of BTC

As the largest asset by market capitalization in the blockchain ecosystem, Bitcoin has long been regarded as a store of value. However, its practical applications and yield generation capabilities have been relatively limited. These limitations stem primarily from the scalability and scripting language constraints of the Bitcoin network, which hinder its ability to support complex decentralized finance (DeFi) applications.

For Bitcoin holders, traditionally, the only ways to generate returns on their BTC holdings have been to deposit their assets on centralized exchanges or use bridge services to convert them into wrapped tokens (such as WBTC). However, these methods introduce additional risks, particularly the trust risk associated with centralized platforms, which contradicts the decentralized nature of Bitcoin.

Bitcoin's limitations in the DeFi space not only restrict holders from participating in a wider range of financial activities but also, to some extent, hinder the development of the entire crypto economy. A popular internet meme encapsulates this situation: "As an investment, Bitcoin, aside from long-term holding ("HODL-ing"), seems to have no other options."

These limitations have resulted in a very limited range of investment products available to Bitcoin holders. Existing products are often overly simplistic, lacking complex structural designs and risk hedging strategies, making it difficult to meet investors' diverse needs for risk and returns. This makes it challenging for BTC holders to participate in DeFi activities to earn diversified returns, compared to say, ETH and SOL.

Turning BTC Into Yield-Bearing Asset

Babylon has revolutionized the Bitcoin landscape by enabling secure and permissionless staking of BTC, turning BTC Into a yield-bearing asset.

Babylon achieved this breakthrough in the following ways:

• Introducing a Unique Staking Contract: Creating UTXOs with specified conditions through a Bitcoin script that allows the BTC holder to lock their assets.

• Cross-chain Interoperability: Utilizing locked BTC to enhance the security of external Proof-of-Stake (PoS) networks.

• Maintaining Self-Custody: Users retain full control over their BTC, eliminating the need for third-party custody.

• Creation of Synthetic Tokens (e.g. uniBTC, solvBTC, etc.): Earn yields by staking your synthetically generated BTC tokens on your preferred PoS chain, earning PoS tokens as rewards.

This permissionless Bitcoin staking mechanism transforms the asset properties of BTC. It enables PoS blockchain staking without the need for third-party custody or wrapped tokens, enhancing the security and economic benefits of PoS systems. Holders can maintain self-custody while earning diversified returns by participating in various DeFi ecosystems.

In essence, Babylon has ended the era of Bitcoin being an idle, zero interest-bearing asset. Now, Babylon allows users to participate in self-custodial staking, opening up new possibilities for all Bitcoin holders.

Ushering in the era of BTCFi

Like other decentralized finance (DeFi) applications, BTCFi mirrors DeFi products in the Bitcoin ecosystem. Key categories include:

• Lending: Users can lend out Bitcoin to earn interest or borrow other assets using Bitcoin as collateral, introducing the concept of "earning interest on savings".

• Staking: Babylon enables users to lock up Bitcoin to earn rewards or participate in governance of PoS protocols.

• Exchange: Decentralized exchanges (DEXs) that support BTCFi enable peer-to-peer trading of Bitcoin and other cryptocurrencies without relying on centralized intermediaries.

• Yield Farming: Users can provide liquidity to protocols building on the Bitcoin ecosystem and earn rewards.

To fully unleash Bitcoin's potential in the DeFi space, having just an infrastructure layer alone is insufficient. There is a need for a rich and diverse range of applications built on top of Babylon. Builders should focus on developing products and instruments that are useful for on-chain users. Successful BTCFi applications should focus on two core aspects:

• User Experience: Developers should provide intuitive and simple staking front-ends, enabling users to easily participate in various staking options and earn rewards. This simplified process can significantly lower the barrier to entry for BTCFi.

• Investment Product Design: The key is to meet the diverse investment needs of Bitcoin holders of different sizes. Developers should expand the capabilities of the Babylon protocol to create solutions that allow for participation in BTC staking as a whole risk-return unit. By packaging these solutions into different yield strategies and participating in various Ethereum-based DeFi projects to earn additional returns (such as providing liquidity, participating in lending, etc.), more holders can be attracted, and developers can earn fees.

To cater to different user investment preferences and risk tolerances, applications should offer a diverse range of risk-reward options, from conservative to aggressive. For example, products similar to "Bitcoin savings accounts" could be designed, allowing users to deposit and withdraw funds at will while enjoying stable returns. This flexibility not only increases the freedom to use funds but also effectively avoids the minimum staking amount and lock-up period requirements that may be set by the Babylon protocol, enabling more retail users to participate.

Babylon's Ecosystem At A Glance

While the Babylon mainnet has just gone live, the ecosystem has already begun to attract a large number of high quality projects and developers to build applications on it. The BTCFi apps in the Babylon ecosystem offer Bitcoin holders a wide range of investment options, from simple staking to complex yield farming. These applications are transforming Bitcoin from a mere store of value into a yield-generating asset that creates more value for its holders.

Simplifying BTCFi Development With Cobo's BTC Staking API

Cobo's Babylon BTC Staking API allows developers to build applications within the BTCFi ecosystem securely and efficiently. By abstracting away the complexities of developing on the Bitcoin network, Cobo's  Babyon BTC Staking API enables developers to focus building on the application layer without needing to delve into the blockchain intricacies. It provides a comprehensive interface for staking operations, including deposits, withdrawals, and early unbundling, significantly accelerating development timelines and reducing technical hurdles.

Why Consider Cobo As Your Trusted API Solutions Provider?

While Babylon is a decentralized staking solution, there are compelling reasons to consider using a third-party service like Cobo:

• Enhanced Risk Management: Cobo's escrow service provides a robust security layer, mitigating both external and internal risks to funds. This is crucial for developers seeking to safeguard their assets during the staking process.

• Specialized Expertise: Cobo's dedicated team offers tailored technical solutions, such as UTXO splitting, pre-signing, and batch broadcasting of staking transactions. These features can significantly improve the efficiency and success rate of staking operations.

By leveraging Cobo's Babylon BTC Staking API, developers can benefit from a streamlined development experience, enhanced security, and the specialized support needed to build successful BTCFi applications.

Want to have a competitive edge in securing your BTC Staking allocations for Babylon's Phase 2? Visit www.cobo.com to explore our API offerings and schedule a demo.